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When you’re a business owner, you know there’s this balance between you getting your business bigger (where you need to spend more money), but at the same time, you need to cut down on expenses where you can. Honestly, if you want to get the full potential out of your business, you’ll need money for it. It’s not just about thinking about the long-term future of your business but the short one, too. There are so many components of a business you have to think about in order for it to truly expand, just like the way you’ve always hoped it would.

 

For example,  a company car(s) is one of the biggest investments a business can make. Even for just a regular individual, a car is expensive, even just a used one. Plus, a company car has additional standards that you need to think of too; it’s not just reliability, but fuel efficiency and mileage; you have to think about the type of car due to insurance, comfort, space, size, and even a degree, the aesthetics too. Basically, this needs to be the perfect car, and it needs to tick every box for what your business needs. 

 

With that said, though, should you lease your company vehicles, or should you just outright buy them? Well, there are actually advantages and disadvantages to both of these that you really need to keep in mind!

Why Can This Be Difficult?

If it were your personal car, by all means, you’d just prefer to own it, right? But it’s not exactly that straightforward when it comes to business-oriented cars. One of the primary challenges stems from the complex financial considerations involved.

 

While leasing may offer lower upfront costs and predictable monthly payments, ownership presents the potential for long-term equity accumulation and greater control over vehicle usage. It’s basically that long-term versus short-term expenses and goals for a company that you’re having to think about. Additionally, the varying needs of different businesses add another layer of complexity to the decision-making process. Not every business is the same, so what purpose do you have for these cars? In fact, how many are you after?

For some companies, operational flexibility and the ability to easily upgrade or modify their vehicle fleet outweigh the benefits of ownership. On the other hand, businesses with stable cash flow and a desire for long-term asset ownership may lean towards purchasing company vehicles. But in general, it’s all about balance. You’ll need to consider balancing these factors while aligning them with your company’s financial goals and objectives, which can present a significant challenge.

When Would Ownership be a Good Option?

So think for a moment why you would want to own your own car. It’s because it’s your car and no one else’s, right? You can literally do anything and everything you’d want to do, such as buying Fleece Diesel products to enhance your heavy-duty truck, adding tacky bumper stickers if you wanted, smoking inside the car if you wanted, and the list goes on.

 

You can do whatever you want in your own car because this is your car. You don’t get to have that option when leasing; you’re abiding by the rules that the leasing company tells you. 

Long Haul Investment

You need to keep in mind that owning company cars isn’t just about having wheels—it’s also about investing in the long haul. So, just by owning your own fleet, your business (and others) can build equity in their assets over time. This means that if the cars are well taken care of, they could potentially increase in value, unlike leased vehicles, where you’re essentially renting them.

There’s Upfront Costs

But let’s not sugarcoat it—there are some downsides, too. The biggest one is the hefty upfront cost of buying the vehicles outright. Unlike leasing, where you might only have to put down a fraction of the cost upfront, purchasing cars outright requires a hefty chunk of change upfront. This can be a tough pill to swallow, especially for smaller businesses or startups.

 

It Can Be Pretty Expensive

And once you’ve got those cars, the expenses keep coming. Owners are on the hook for all the maintenance and repair costs, which can add up fast. From routine oil changes to unexpected breakdowns, these costs can take a toll on a business’s bottom line. Plus, there’s the issue of depreciation. As cars get older and rack up more miles, their value goes down. This means that when it comes time to sell or upgrade the fleet, businesses might not get as much back as they put in. This alone can make you question if it’s even worth it, right?

Wouldn’t Leasing be a Better Option?

Technically, there is no right or wrong answer. It’s up to you and what’s best for your business. Even though there are some downsides to outright buying company cars, that doesn’t immediately mean that leasing is the best option. In fact, there are even some downsides to leasing, too, but of course, it’s not all bad either. 

You Just Don’t Own It

Alright, let’s talk about leasing company cars. So, when you lease a car for your business, you’re basically renting it for a set period, usually a few years. During that time, you make monthly payments to use the vehicle, but you don’t actually own it. Once the lease term is up, you can either return the car or buy it at its residual value, which is its estimated worth at the end of the lease. But until then, it’s not yours, and you can’t customize it whatsoever. 

Then, there are lease-end fees. When your lease is up, you’ll have to return the car in good condition or pay extra for any wear and tear beyond normal use. And if you decide not to buy the car at the end of the lease, you’re left with nothing to show for all those payments—no ownership equity to speak of. So, while leasing can be a great option for some businesses, it’s important to weigh the pros and cons carefully before making a decision.

The Upfront Cost Isn’t So Bad

Now, leasing has its perks, and one of the big ones is the lower upfront costs. Instead of shelling out a big chunk of cash to buy a car outright, you usually just need to cover a down payment and some fees to get started. Plus, your monthly lease payments are typically lower than loan payments would be if you bought the car, so it’s easier on your cash flow.

No Hidden Costs

Speaking of monthly payments, leasing offers another benefit: predictability. With a lease, you know exactly how much you’ll be paying each month, making it easier to budget and plan for your expenses. And here’s a bonus: depending on where you’re located and your tax situation, leasing might come with some tax advantages, too. You might be able to deduct some or all of your lease payments as a business expense, which can lower your taxable income.

You’re Capped

If you plan on driving a lot, then this actually might not be the best idea, but if you’re not going to use the car too often, then you should be fine. In general, leasing isn’t all sunshine and rainbows. One downside is mileage restrictions- yes, there’s a cap! A lot of business owners don’t even know this! Most leases come with a cap on the number of miles you can drive each year, and if you go over that limit, you’ll have to pay extra fees. This can be a headache if you have a lot of drivers or if your business involves a ton of driving.

What are the Factors to Consider When Figuring Out Which Option is Best?

It’s easier to break this down because, again, it really varies from business to business and even person to person. There is no right or wrong answer to what may be ideal. 

Are You Willing to Make an Investment?

First, we’ve got the financial side of things. Owning a car means you’re making a big upfront investment, but you’ve got the potential to build equity over time. On the other hand, leasing might be easier on your wallet in the short term with lower upfront costs and predictable monthly payments. But remember, at the end of the day, you don’t own the car, so you’re not building any equity.

Are You Okay with Lack of Control?

Owning your cars gives you total control—you can customize them, use them however you want, and there are no mileage restrictions to worry about. But if your business needs change down the road, you might be stuck with a fleet of cars that no longer suits your needs. With leasing, you’ve got more flexibility to upgrade or change your fleet as your business evolves, but you’ll have to stick to those mileage limits and other lease terms.

Industry Regulations

Depending on where you operate and what industry you’re in, there might be specific rules or incentives that make one option more appealing than the other. 

Company Size

For smaller businesses or startups with limited capital, leasing might be the more attractive option since it requires less money upfront and offers predictable monthly payments. But as your business grows and your cash flow improves, owning your cars might make more sense in the long run. So yes, the size and financial situation can matter when it comes to this.